Post on 31-May-2020
2015 Earnings Review
February 26, 2016
Safe Harbor Statement
2
Statements made in this presentation that relate to future events or PNM Resources’ (“PNMR”), Public Service Company of New Mexico’s (“PNM”), or Texas-New Mexico Power Company’s (“TNMP”) (collectively, the “Company”) expectations, projections, estimates, intentions, goals, targets, and strategies are made pursuant to the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements are based upon current expectations and estimates. PNMR, PNM, and TNMP assume no obligation to update this information. Because actual results may differ materially from those expressed or implied by these forward-looking statements, PNMR, PNM, and TNMP caution readers not to place undue reliance on these statements. PNMR's, PNM's, and TNMP's business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond their control, that can cause actual results to differ from those expressed or implied by the forward-looking statements. For a discussion of risk factors and other important factors affecting forward-looking statements, please see the Company’s Form 10-K and 10-Q filings with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein.
Non-GAAP Financial Measures For an explanation of the non-GAAP financial measures that appear on certain slides in this presentation (ongoing earnings and ongoing earnings per diluted share), as well as a reconciliation to GAAP measures, please refer to the Company’s website as follows: http://www.pnmresources.com/investors/results.cfm.
Opening Remarks & Overview Pat Vincent-Collawn
Chairman, President and CEO
2015 Accomplishments and Highlights
4
• PNM BART plan approved by FERC and NMPRC • PNM Future Test Year definition resolved • PNM Transmission formula rate case settled • TNMP implemented two TCOS increases • TNMP AMS Reconciliation filing recommended for approval
without exception
Regulatory Accomplishments
• PNM received 2015 ReliabilityOneTM Award for Outstanding
Midsize Utility • PNM Customer Satisfaction scores increased; NMPRC merited
complaints sustained at 5-year record-low levels • PNM increased generation capacity: 40 MW utility-scale solar,
40 MW La Luz gas peaking station • TNMP Energy Efficiency program receives ENERGY STAR’s
Market Leader Award for 11th consecutive year • TNMP achieved 91% of AMS meter installation; Outage
Management System implemented
Operational Highlights
Q4 2015 Financial Results and Updates
5
2016 Guidance of $1.55 - $1.76 affirmed
Q4 2015(1) Q4 2014 2015 2014
Ongoing EPS $0.23 $0.24 $1.64 $1.49
GAAP EPS ($1.15)(2) $0.24 $0.20(2) $1.45
Financial Results:
Updates: BART implementation
SNCRs and Balanced Draft in full operation Savings from new coal supply and restructuring agreements to customers
August 2015 PNM General Rate Case March 14 – 25, 2016: Hearings Q3 2016: Rates Effective
TNMP TCOS filing $4.3 million annual increase expected to be effective March 2016
(1) Q4 2015 presented on a basic basis due to Q4 being a loss for GAAP; other periods presented on a diluted basis. (2) GAAP EPS in 2015 includes a $100.7 million after-tax write-off ($1.26 per share) of the expected unrecovered
investment in San Juan Generating Station (San Juan) Units 2 and 3 and certain other items related to San Juan in accordance with the December BART approval.
Financial Overview Chuck Eldred
Executive Vice President and CFO
Load and Economic Conditions
7
Regulated Retail Energy Sales (weather-normalized)
(1) U.S. Bureau of Labor Statistics, December 2015
PNM
% of 2015 Sales
Q4 2015 vs. Q4 2014
2015 vs. 2014
Residential 39% 0.0% 0.0%
Commercial 46% (1.9%) (2.2%)
Industrial 12% (4.0%) (2.7%)
Total Retail (1.3%) (1.4%)
TNMP
% of 2015 Sales
Q4 2015 vs. Q4 2014
2015 vs. 2014
Residential 51% 6.8% 4.2%
Commercial 46% (1.0%) 1.4%
Total Retail 2.4% 2.6%
Average Customer Growth
Q4 2015 vs. Q4 2014
2015 vs. 2014
2015 Forecast
2016 Forecast
PNM 0.8% 0.7% 0.5% 0.5%
TNMP 1.5% 1.5% 1.0% 1.0%
1.6%
3.5%
2.0% 2.1%
-1.0%0.0%1.0%2.0%3.0%4.0%5.0%
12/1
2
03/1
3
06/1
3
09/1
3
12/1
3
03/1
4
06/1
4
09/1
4
12/1
4
03/1
5
06/1
5
09/1
5
12/1
5
% C
hang
e
Employment Growth(1)
12-Month Rolling Average
Albuquerque Dallas Houston U.S.
2015 Load Forecast: (2%) – 0% 2016 Load Forecast: (2%) – 0%
2015 Load Forecast: 2% – 3% 2016 Load Forecast: 2% – 3%
2015 Ongoing EPS
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PNM Resources 2015 Guidance: $1.56 – $1.61
2015 Actual: $1.64
PNM Guidance: $1.13 - $1.16
Actual: $1.18
TNMP Guidance: $0.51 - $0.52
Actual: $0.52
Corp/Other Guidance: ($0.08) – ($0.07)
Actual: ($0.06)
Q4 2015 Financial Summary
9
$0.24 $0.23 $0.03 $0.00
$0.02
Q4 2014 Q4 2015
Ongoing EPS
PNM Corporate TNMP
PNM and TNMP: Q4 2015 vs Q4 2014 EPS (Ongoing)
$0.16 $0.13
Q4 2014 Q4 2015
10
$0.11 $0.11
Q4 2014 Q4 2015
PNM
TNMP
Q4 2015 Key Performance Drivers ∆ EPS AFUDC $0.03 Palo Verde Unit 1 leases at half price $0.03 Weather $0.02 Palo Verde Nuclear Decommissioning Trust gains $0.02 Renewable rate relief $0.01
O&M increases ($0.03) Outage costs ($0.02) Exploration of alternative San Juan fuel supply contracts ($0.02) Interest expense ($0.02) Load ($0.01) Transmission margins ($0.01) Depreciation and property tax ($0.01) Capitalized A&G ($0.01) Other ($0.01)
Q4 2015 Key Performance Drivers ∆ EPS
TCOS rate relief $0.01
Other $0.01
Weather ($0.01)
Depreciation and property tax ($0.01)
2016 Guidance
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(1) EPS range assumes implementation of the full rate request filed in the August 2015 General Rate Case, including a 10.5% ROE, between July and October 2016. (2) PNM Renewables reflect assets collected through the Renewable Rate Rider. (3) Transmission is recovered under the FERC formula rate methodology, which uses prior year average rate base and assumes mid-year rate increases, at a 10% ROE. (4) 2016 Guidance assumes a fully-hedged market price of ~$26/MWh ; a price of $43/MWh is required to break even (5) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation, and earnings in 2016
associated with the Navopache contract. (6) TNMP EPS includes $0.02 of CTC, which will be fully amortized in 2020. TNMP Earnings Potential is based on allowed returns in the most recently filed general rate
case. Changes in certain factors, including load growth and lower debt costs, present opportunities for further potential. (7) Corporate/Other includes the capital expenditures and restructuring fees associated with the 65MW of San Juan Unit 4 that PNM is expected to acquire at the end
of 2017. Also includes short and intermediate term bank debt.
2016 Earnings Guidance
Avg Rate Base Return EPS
PNM Retail (1) $2.4 B 7.3% - 8.4% $1.08 - $1.24
PNM Renewables (2) $100 M 10.0% $0.06
PNM FERC Transmission (3) $180 M 8.1% - 9.0% $0.09 - $0.10
PV3 (4) ($0.14)
Items not in rates (5) $0.03 - $0.04
Total PNM $2.7 B $1.12 - $1.30
TNMP (6) $700 M ~10.125% $0.49 - $0.51 Corporate/Other (7) ($0.06) - ($0.05) Total PNM Resources $3.4 B $1.55 - $1.76
Above Industry Average Earnings Growth Through 2019
12
2012 – 2015 Ongoing EPS represents actual results 2016E Ongoing EPS represents ongoing earnings guidance of $1.55 - $1.76 per diluted share
Strategic Goals
Earn Authorized Return on Regulated Businesses
Maintain Solid Investment Grade Credit Ratings
Above Industry Average Earnings and Dividend Growth
$1.31 $1.41 $1.49
$1.64
$1.55
$1.76
2012 2013 2014 2015 2016E 2017E 2018E 2019EOngoing EPS
$0.58 $0.66 $0.74 $0.80 $0.88
Declared Dividends
Feb ‘13 Dec ‘13 Dec ‘14 Feb ‘12 Dec ‘15
Questions & Answers
Appendix
2017 - 2019 Potential Earnings Power
15
Allowed Return /
Equity Ratio
2017 Earnings Potential 2018 Earnings Potential 2019 Earnings Potential
Avg Rate Base EPS Avg Rate
Base EPS Avg Rate Base EPS
PNM Retail (1) 10% / 50% $2.4 B $1.50 $2.6 B $1.59 $2.5 B $1.58
PNM Renewables (2) 10% / 50% $95 M $0.06 $90 M $0.06 $85 M $0.05
PNM FERC Transmission (3) 10% / ~50% $180 M $0.08-$0.10 $245 M $0.11-$0.14 $270 M $0.12-$0.15
PV3 (4) ($0.13) Included in PNM Retail Included in PNM Retail
Items not in rates (5) $0.01-$0.04 ($0.02)-$0.01 ($0.01)-$0.05
Total PNM $2.7 B $1.52 - $1.57 $2.9 B $1.74 - $1.80 $2.9 B $1.74 - $1.83
TNMP (6) 10.125% / 45% $770 M $0.46 $810 M $0.48 $860 M $0.52
Corporate/Other (7) ($0.06)-($0.04) ($0.06)-($0.04) ($0.06)-($0.04)
Total PNM Resources $3.4 B $1.92 - $1.99 $3.7 B $2.16 - $2.24 $3.8 B $2.20 - $2.31
(1) The August 2015 General Rate Case filing proposes a 10.5% ROE. The currently authorized 10% ROE has been used for this presentation. (2) PNM Renewables reflect assets collected through the Renewable Rate Rider. (3) Transmission is recovered under the FERC formula rate methodology, which uses prior year average rate base and assumes mid-year rate increases, at a 10% ROE. To
reflect this inherent lag in the methodology, earnings potential represents the prior year average rate base and uses an ROE range of 7 – 9%. (4) 2017 Earnings Potential assumes a forward market price of $28/MWh; a price of $44/MWh is required to break even. PV3 is included in PNM rates beginning in 2018. (5) Consists primarily of Palo Verde Nuclear Decommissioning Trust gains and losses, AFUDC, refined coal, certain incentive compensation, earnings in 2017 associated
with the assets previously allocated to the Navopache contract, and the 65MW ownership of San Juan Unit 4 beginning in 2018. (6) TNMP Earnings Potential includes $0.02 of CTC in 2017 and 2018 and $0.01 in 2019. TNMP allowed returns are based on the most recently filed general rate case.
Changes in certain factors, including load growth and lower debt costs, present opportunities for further potential. 2019 Earnings Potential includes the refinancing of $172M of 9.5% debt for $0.02.
(7) Corporate/Other includes the capital expenditures and restructuring fees associated with the 65MW ownership of San Juan Unit 4 before 2018 and short and intermediate term bank debt.
This table is not intended to represent a forward-looking projection of 2017 - 2019 earnings guidance.
FY 2015 Financial Summary
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$1.49
$1.64 $0.08 $0.05 $0.02
2014 2015
Ongoing EPS
PNM TNMP Corporate
PNM and TNMP: 2015 vs 2014 EPS (Ongoing)
17
PNM
TNMP
2015 Key Performance Drivers ∆ EPS Palo Verde Unit 1 leases at half price $0.12 AFUDC $0.09 Palo Verde Nuclear Decommissioning Trust gains $0.05 Refined coal $0.03 El Paso natural gas tariff $0.03 Renewable rate relief $0.02 Weather $0.02 2003 – 2008 IRS Settlement $0.02 Other $0.02 Rio Bravo purchase $0.01
Load ($0.07) Outage costs ($0.06) Depreciation and property tax ($0.05) Transmission margins ($0.04) O&M increases ($0.04) FERC Generation Gallup contract ($0.03) Exploration of alternative San Juan fuel supply contracts ($0.02) Interest expense ($0.02)
2015 Key Performance Drivers ∆ EPS TCOS rate relief $0.06 Load $0.03
Depreciation and property tax ($0.03) Other ($0.01)
$0.47 $0.52
2014 2015
$1.10 $1.18
2014 2015
$213 $239 $238 $232
Capital Forecast
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2016 – 2019 Total Capital Plan: $1.7B
PNM 2015-2019 Rate Base CAGR: 5 - 7%(1)
TNMP 2015-2019 Rate Base CAGR: 7 - 9%
(1)Includes the addition of PV3 to rate base, which does not have associated capital spending. (2)The additional 65 MW ownership of San Juan Unit 4 included in the December BART approval is part of Corporate/Other for 2016-2017 and PNM beginning in 2018. Beginning in July 2016, depreciation rates reflect the full rate change proposed in the August 2015 General Rate Case filing. Amounts may not add due to rounding.
$298
$163 $167 $93
$99
$132 $102
$127
$115
$101 $114
$117
$36
$19 $14
$15
2016 2017 2018 2019
(In millions)
PNM Generation PNM T&D TNMP Corporate/Other Depreciation
$547
$415 $398 $352
Palo Verde Unit 3 added to
rate base
(2) (2)
Weather Impact
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PNM Q4 2015 Q4 2014 2015 Normal(1)
Heating Degree Days 1,560 1,442 1,599
Cooling Degree Days 43 4 16
EPS Impact compared to normal
$0.01 ($0.01)
TNMP Q4 2015 Q4 2014 2015 Normal(1)
Heating Degree Days 492 688 672
Cooling Degree Days 305 255 281
EPS Impact compared to normal
($0.01) $0.00 (1) 2015 normal weather assumption reflects the 10-year average for the period 2004 - 2013.
PNM Plant EAF and Outages
20
2016 - 2017 Outage Schedule
76.5% 66.8%
91.8%
65.8%
78.1%
92.4%
San Juan Four Corners Palo Verde12 months ending 12/31/1412 months ending 12/31/15
Unit Duration in Days
Time Period
San Juan
1 7 Q1 2016
3 13 Q1 2016
2 16 Q1 2016
4 15 Q2 2016
Four Corners
5 72 94
Q1-Q2 2016 Q4 2017
4 21 Q1-Q2 2016
Palo Verde
1 34 34
Q2 2016 Q4 2017
3 34 Q4 2016
2 34 Q2 2017
Balance Sheet and Credit Metrics
Liquidity as of February 19, 2016
22
PNM TNMP Corporate/
Other
PNM Resources
Consolidated
Financing Capacity(1): (In millions)
Revolving credit facilities $450.0 $75.0 $300.0 $825.0
As of 2/19/16:
Short-term debt and LOC balances $99.4 $15.1 $112.3 $226.8
Remaining availability 350.6 59.9 187.7 598.2
Invested cash - - 1.9 1.9
Total Available Liquidity $350.6 $59.9 $189.6 $600.1
(1) Excludes intercompany debt and term loans
Selected Balance Sheet Information
23
(1) 2014 balances have been modified from prior period presentations to include debt issuance costs as a reduction to long-term debt (2) Excludes intercompany debt Amounts may not add due to rounding
(In millions) Dec 31, 2014 (1) Dec 31, 2015
Long-Term Debt (incl. current portion)
PNM $1,482.5 $1,580.7
TNMP 361.2 361.4
Corporate/Other 118.6 149.9
Consolidated $1,962.4 $2,091.9
Total Debt (incl. short-term) (2)
PNM $1,482.5 $1,580.7
TNMP 366.2 420.4
Corporate/Other 219.2 341.5
Consolidated $2,068.0 $2,342.5
Credit Ratings
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PNMR S&P Moody’s
Credit rating BBB+(1) Baa3(1)
Issuer outlook Stable Stable
(1) Issuer/Corporate rating (2) Senior unsecured (3) Senior secured
PNM S&P Moody’s
Credit rating BBB+(2) Baa2(2)
Issuer outlook Stable Stable
TNMP S&P Moody’s
Credit rating A(3) A1(3)
Issuer outlook Stable Stable
Environmental Compliance
Environmental Control Equipment at Coal Units
26
Coal Unit PNM Share
Capacity (MW)
Low NOx Burners/
Overfired Air
Activated Carbon
Injection (2) SNCR (3) SCR (3) Baghouse (4) Scrubbers
San Juan Unit 1 170 X X X X X
San Juan Unit 2 (1) 170 X X X X
San Juan Unit 3 (1) 248 X X X X
San Juan Unit 4 195 X X X X X
Four Corners Unit 4 100
Pre-2000 low NOx burners-
considered outdated
By July 31, 2018 X X
Four Corners Unit 5 100
Pre-2000 low NOx burners-
considered outdated
By July 31, 2018 X X
(1) San Juan Units 2 and 3 are expected to shut down on December 31, 2017. (2) Activated carbon injection systems reduce mercury emissions. For San Juan, the installation was completed in 2009, as part of a 3-year, $320M environmental upgrade. (3) SNCR refers to selective non-catalytic reduction systems. SCR refers to selective catalytic reduction systems. Both systems reduce NOx emissions. (4) Baghouses collect flyash and other particulate matter. For San Juan, the installation was completed in 2009, as part of a 3-year, $320M environmental upgrade.
Impact of Environmental Regulation- SJGS
27
San Juan Generating Station Estimated Compliance Costs (PNM Share) Comments
Clean Air Act – Regional Haze(1) (State Alternative) – SNCR $78M SNCR technology on 2 units; Retire 2 units.
Clean Air Act – National Ambient Air Quality Standards (NAAQS) Included in SNCR(1)
Balanced draft will assist with NAAQS compliance. On October 1, 2015, EPA published the new primary and secondary ozone NAAQS of 70 ppb (from 75 ppb). EPA and NMED will initiate a 2-year process to determine attainment/non-attainment areas. It is uncertain at this time if San Juan County will become non-attainment for ozone.
Mercury Rules (MATS) None to minimal Testing shows 99% or greater removal.
Resource Conservation and Recovery Act – Coal Ash Minimal to some exposure
EPA published the final coal combustion residuals (CCR) rule on April 20, 2015. The rule regulates CCR as a non-hazardous waste under Subtitle D of RCRA. SJGS operations are in compliance with the CCR rule which became effective October 19, 2015. The rule does not apply to placement of coal ash in mines – Office of Surface Mining (OSM) is expected to issue its own rule in 2016 and OSM will be influenced by EPA’s rule.
Clean Water Act – 316(b) Cooling Water Intake Structures Minimal to some exposure
On September 22, 2015, EPA granted approval to terminate SJGS’s National Pollutant Discharge Elimination System (“NPDES”) permit. Although SJGS has been a zero discharge facility for several years, EPA required the plant to maintain a NPDES permit. The cooling water intake structure rule still applies as the plant operates under EPA’s NPDES Multi-Sector General Stormwater Permit. PNM will work with EPA Region 6 to address any requirements with the next permit renewable which could be issued as soon as 2020.
Effluent Limitation Guidelines (Wastewater Discharge) None to minimal exposure
EPA published the final Steam Effluent Guidelines Rule on September 30, 2015. Because SJGS is zero discharge for wastewater and no longer holds an NPDES process water permit, minimum to no requirements are expected.
(1) Includes PNMR Development and Management Company’s 65 MW, in addition to PNM’s 132 MW, of San Juan Unit 4 included in the December BART approval which are to be acquired on December 31, 2017.
Impact of Environmental Regulation- Four Corners
28
Four Corners (Units 4 and 5) Estimated Compliance Costs (PNM Share) Comments
Clean Air Act – Regional Haze – SCR $94M Final BART determination filed with EPA on December 30, 2013. Impact to PNM: SCR controls for NOx on Units 4 & 5 by July 31, 2018.
Clean Air Act – National Ambient Air Quality Standards (NAAQS) Some to significant exposure
On October 1, 2015, EPA published the new primary and secondary NAAQS for ozone. The standard decreased from 75 ppb to 70 ppb. EPA(1) will initiate a 2-year process to determine attainment/non-attainment areas. It is uncertain at this time if San Juan County will become non-attainment for ozone.
Mercury Rules (MATS) Slight exposure APS has determined that no additional equipment will be required.
Resource Conservation and Recovery Act – Coal Ash Slight exposure
EPA published the final coal combustion residuals (CCR) rule on April 20, 2015. The rule regulates CCR as a non-hazardous waste under Subtitle D of RCRA. APS will be required to make some modifications to their ash handling operations.
Clean Water Act – 316(b) Cooling Water Intake Structures Some exposure
APS does not expect the cost impacts of this rule to be material and is currently in discussions with EPA Region 9, the NPDES permit writer for Four Corners, to determine the scope of requirements which will dictate the costs to comply.
Effluent Limitation Guidelines (Wastewater Discharge) Some exposure
EPA published the final Steam Effluent Guidelines Rule on September 30, 2015. Effluent limitation guidelines restrictions will become effective with the next NPDES permit renewal, which occur in 5-year intervals that arise between 2018 and 2023. Until a draft NPDES permit for Four Corners is proposed, APS is uncertain what will be required to control these discharges in compliance with the finalized effluent limitations at that facility.
(1) NMED does not have jurisdiction over Navajo Nation. It is uncertain if and how EPA will engage NMED in determining attainment/nonattainment designations for those areas of San Juan County that fall on the Navajo Nation.